[Intl-tobacco] Philip Morris unit to shut Argentine plant (fwd)

[Robert Weissman]

Source: Reuters, Wednesday, 1/5/00
Wednesday January 5, 3:56 pm Eastern Time

BUENOS AIRES, Jan 5 (Reuters) - The Argentine subsidiary of tobacco giant
Philip Morris Cos Inc. (NYSE:MO - news) said Wednesday it would shut down
a plant employing 500 workers because a tax increase on cigarettes.

Massalin Particulares , the country's largest cigarette producer, said an
increase in a special tax to 21 percent from 7 percent would hurt margins,
reduce consumption and increase the black market sale of tobacco products.
As a result, the company said it was being forced to close its plant in
Goya in the impoverished province of Corrientes.

``The company must adjust its productive capacity to the new market
created by these new circumstances and more efficiently use its productive
resources,'' Massalin said in a letter to the Buenos Aires Stock Exchange.

The increase is part of a $2.6 billion tax plan pushed through last month
by President Fernando de la Rua, who hopes to use the funds to rein in
Argentina's yawning budget deficit. Tobacco accounted for $2.0 billion in
fiscal revenue a year before the tax increase.

Massalin Executive Vice President Jorge Vives told Reuters last month the
increase would raise the total taxation on cigarettes to 72.5 percent of
the total price from 68 percent.

Massalin, which employs nearly 3,000 of Argentina's 4,000 cigarette
workers, operates two other plants in the country. In 1991, it closed a
plant that employed nearly 1,000 workers.

Other companies have also said they may have to lay off workers and close
plants as a result of the tax scheme, which affected levies on alcoholic
drinks, jewelry, mobile phone use and transportation vehicles, among
others.

Massalin earned $48.8 million in the first half of 1999 while Argentina's
only other cigarette maker, Nobleza Piccardo , a unit of British American
Tobacco Industries Plc (quote from Yahoo! UK & Ireland: BATS.L), earned
$12.5 million in the first nine months of 1999.